Finder’s RBA Cash Rate Survey: 60% of experts blame BNPL for drop in credit cards

Credit cards are being used less and experts say Buy Now Pay Later services such as Afterpay and Zip are to blame.

In this month's Finder RBA Cash Rate Survey™, 39 experts and economists weighed in on future cash rate moves and other issues related to the state of the Australian economy.

While all experts surveyed (39/39) correctly predicted the cash rate would hold at 0.10%, 3 in 5 (15/25, 60%) said Buy Now Pay Later (BNPL) services are the most responsible for the decline of credit card use in Australia over the last four years.

Graham Cooke, head of consumer research at Finder, said BNPL services are becoming increasingly popular, but despite users incurring no interest on purchases, there are drawbacks.

"The allure of BNPL services, which allow people to walk out of a store with an item and pay for it later, is strong.

"With many services requiring no credit checks, they offer an easy path to instant gratification with few apparent drawbacks.

"But there is no such thing as free credit. One in five BNPL users report missing payments - and the revenue collected from late fees across the industry has increased by 38% year-on-year.

"BNPL services are credit products like any other, and all credit products come with risks. It's important that you understand the full implications of any agreement you sign up for.

"These services also don't build your credit history the same way that a credit card does, which can mean you have a lower credit score when you go to apply for a home loan," Cooke said.

Rebecca Cassells of the Bankwest Curtin Economics Centre said that while BNPL services are the main reason for the decline in credit card usage, there are other things at play as well.

"The lower demand for credit cards has also been impacted by COVID, with many consumers paying-off and cancelling cards in the last 12 months and instead opting to save," Cassells said.

Shane Oliver of AMP Capital said BNPL services aren't most responsible for the drop in card use.

"[BNPL services] are one factor. But I think Australians have learned to rationalise their credit card usage in the face of credit card fees and high interest rates on outstanding credit card debt," he said.

38% of Aussies have made an Afterpay transaction

A Finder survey of 1,015 respondents in March 2021 found that 52% of Australians have used a BNPL service (such as Afterpay or Zip) or store lay-by – equivalent to 10 million Aussie adults.

The data shows Afterpay is by far the most popular service, with 38% of respondents having used it, followed by Zip (24%), store lay-by (8%), Humm (8%), and Openpay (7%).

Source: Finder's Consumer Sentiment Tracker survey of 1,015 respondents, March 2021.

Gen Z is the most likely to use BNPL, with 74% reporting paying for items in installments versus just 19% of Baby Boomers.

Women (58%) are slightly more likely than men (46%) to be engaging with BNPL services.

According to ASIC's research, in the 2018–19 financial year, missed payment fee revenue for BNPL providers totalled over $43 million, a growth of 38% compared to the previous financial year.

While the number of credit cards in circulation has been decreasing since May 2017, a vast majority of economists (21/23, 91%) believe that credit cards will never fully be phased out.

Cooke said credit cards are here to stay, but the trend among younger users is certainly concerning for card providers.

"BNPL services are hugely popular with younger consumers for a reason – they allow quick, easy credit with less risk than a credit card.

"Gen Z may be the first generation since credit cards were introduced to abandon them completely," Cooke said.

Here's what our experts had to say:

Shane Oliver, AMP Capital: "The RBA's preconditions for a rate hike - namely actual inflation sustainably within the 2-3% target, materially higher wages growth and a tight labour market - are unlikely to be met for several years."

Rebecca Cassells, Bankwest Curtin Economics Centre: "The economy could right now go one of two ways. It could continue its rapid recovery and surpass expectations of growth and employment, hoovering up spare capacity, and pushing up inflation until we reach the 2% threshold. In its response, the RBA could be looking to add a quarter of a basis point to official interest rates by the end of 2021. But we could also see the hard-earned gains won eroded rapidly, as lockdowns continue, safety nets disappear and vaccinations roll out at a snail's pace. This scenario is a very real possibility and is playing out right now in Brisbane. Business confidence will quickly wane and employment will begin to head backwards – as will any inflationary pressures (sans the housing market, which is already overheated). Interest rates under this scenario would take some time to lift again."

David Robertson, Bendigo Bank: "No change to official interest rates will be seen for this year and most of next year, but subject to the speed and success of the vaccine rollout the economic upswing should be a sharp one, requiring higher interest rates."

Sean Langcake, BIS Oxford Economics: "The RBA will look through the upcoming increase in inflation and wait for wage pressures to lift core inflation above 2% before increasing rates. Progress toward a tighter labour market continues to beat expectations, but it will be some time before wage growth increases materially."

Ben Udy, Capital Economics: "The RBA has been clear that it is not keen to ease monetary policy prematurely. It appears the Bank has lowered its estimate of the natural rate of unemployment to close to 4% so the recovery in the labour market still has a long way to go."

Peter Tulip, Centre for Independent Studies: "Preconditions for raising rates are inflation above 2% and unemployment near the NAIRU. They will probably not happen before 2024."

Peter Boehm, CLSA Premium: "Low interest rates will be with us for the foreseeable future. We need to understand the impact of the removal of Jobkeeper, which is likely to see an increase in unemployment and small business closures. Such an impact may be significant meaning increasing interest rates is not going to support the unemployed or boost economic activity. The next 3-4 months will be telling for the direction of the Australian economy."

Stephen Halmarick, Commonwealth Bank: "The RBA has set a very high hurdle for a cash rate hike - actual inflation sustainably in the 2%-3% target range will need wages growth of at least 3%."

Saul Eslake, Corinna Economic Advisory: "The RBA has been so emphatic that they won't increase the cash rate until "2024 at the earliest", that it's difficult not to take them at their word. Nonetheless, I am surprised that they haven't left themselves at least a bit of 'wriggle room' to allow for the possibility - which, though small, is surely not zero - that the economic conditions they've stipulated for raising the cash rate aren't met before then."

Craig Emerson, Emerson Economics: "The RBA will not increase the cash rate until the unemployment rate falls to around 4 per cent and the inflation rate is clearly in the 2-3 per cent target range."

Angela Jackson, Equity Economics: "RBA will continue to provide the liquidity necessary to keep interest rates low, and not allow a steeper appreciation of the Aussie dollar."

Mark Brimble, Griffith University: "The economy will continue to need support for some time given the local and global uncertainty and impacts of COVID/border closures."

Tony Makin, Griffith University: "Despite what the RBA is saying, a cash rate rise will be inevitable should inflationary pressures suddenly build here and overseas. Massive government bond issues worldwide to cover large ongoing budget deficits will also continue to exert upward pressure on bond yields. Although asset price inflation is not officially targeted, continued escalation of housing and share prices also suggests tighter monetary policy could be warranted sooner than expected."

Leanne Pilkington, Laing+Simmons: "The Reserve Bank has doubled down on its declaration that rates will remain low for some time to come and with JobKeeper now out of the picture, this is not the time to review this approach. The onus now falls on Government to create as soft a landing as possible for consumers affected by the removal of this stimulus, and businesses too, as a consequence."

Nicholas Gruen, Lateral Economics: "I think the economy may well heat up with the balance sheets of households leading to recovery and once that recovery takes hold the money on household balance sheets may come tumbling out of them."

Mathew Tiller, LJ Hooker: "The RBA will continue to hold rates steady, at the current record low levels, until inflation rises and unemployment falls to sit within its target range."

Geoffrey Kingston, Macquarie University: "Inflation pressures are building up slowly but surely."

Michael Yardney, Metropole Property Strategists: "The RBA has made it very clear they will not increase interest rates until unemployment is low enough to stimulate wages growth. This is some time off, and these levels of unemployment have not been achieved since the GFC."

Mark Crosby, Monash University: "RBA has flagged no increase in the cash rate until inflation rises, which is not going to happen this year or next."

Julia Newbould, Money magazine: "If property prices continue to rise, the inflationary pressure will likely cause the RBA to move interest rates before the time they have currently forecast."

Susan Mitchell, Mortgage Choice: "RBA board members are likely to keep the cash rate on hold once again. All eyes will be on the nation's labour market and the unemployment rate, which is likely to rise with the end of JobKeeper. In the meantime, the low cash rate and 'Fear of Missing Out' continue to drive up house prices."

Jeffrey Sheen, Macquarie University: "Unless the economy unexpectedly booms, the RBA has flagged that it expects the cash rate will remain unchanged until late 2023."

Dr Andrew Wilson, My Housing Market: "Steady as she goes for interest rates. No rational case for an increase in the foreseeable future."

Rich Harvey, Propertybuyer: "The RBA has stated Interest rates are on hold for next 3 years and the economy needs stimulatory measures to repair after Covid impacts."

Matthew Peter, QIC: "The RBA are waiting for core inflation to stabilise within its range of 2%-3%, which is some time off even under a strong upside growth scenario. The market has run ahead of the RBA and will rerate the timing of the first-rate hike after the RBA's next meeting."

Noel Whittaker, QUT: "There is no chance of rates dropping – and it's too early to increase them."

Cameron Kusher, REA Group: "While bond yields are rising and the economic recovery is stronger than expected, I believe that the RBA is determined to reach its inflation and full employment targets before lifting rates. I don't believe they will achieve both of those things until 2023 or later."

Jason Azzopardi, Resimac: "Doubt wage growth and inflation can increase to target range prior."

Sveta Angelopoulos, RMIT: "Unlikely that there will be inflationary pressure in the economy for some time."

Jakob B. Madsen, University of Western Australia: "The cash rate cannot be much lower and it is unlikely that the world short interest rates can stay low in the future given the saving deficits that are emerging across the world."

Clement Tisdell, UQ-School of Economics: "Increase is only likely if the economy picks up significantly as a result of substantial vaccination of the public against Covid-19."

Jonathan Chancellor, Urban.com.au: "The RBA board will be watching to see how the pullback of government stimulus now impacts the economy, and especially the housing boom."

Dale Gillham, Wealth Within: "GDP is unlikely to grow strongly over the coming year and so inflation is likely to stay within acceptable limits. I think it more likely at least in the short term that the Government would prefer to buy bonds rather than use interest rates to regulate the economy."

Other participants: John Hewson, ANU. Stephen Koukoulas, Market Economics. Alan Oster, Nab. Mal Wood, Ord Minnett. Christine Williams, Smarter Property Investing. Bill Evans, Westpac.